Top Tips for Property Investors at End of Financial Year 2024
With the end of the financial year just closed, property investors and landlords must make sure they’re on top of their obligations while also maximising their ROI.
From managing your paperwork to submitting tax reports and assessing your investments’ performance, taking a strategic approach to EOFY calculations and obligations will help you make informed decisions on your investment properties and identify opportunities.
One of the most important steps you can take is to work with a qualified tax accountant. Their expertise can help you comply with complex tax laws and improve your financial outcomes.
This guide will give you everything you need to know about your EOFY responsibilities and provide tips to help you increase your investments’ profitability.
Get Your Paperwork in Order and Keep Records of Everything
Maintaining organised financial records is essential for seamless EOFY documentation. Sort your documents into rental income calculations, loan statements, property maintenance costs, and other property-related paperwork.
Keeping accurate and organised reports will not only make tax reporting easier but also enable you to claim deductions accurately and provide protection for your business in the event of a tax audit.
You might also consider keeping both digital and physical records of all important documents, just in case you lose some copies. Your professional property management partner will be able to provide annual financial reports and owner portal facilities to store records of outgoings, saving you time and hassle.
Consider Tax Obligations
Meeting your tax obligations is important to manage compliance and maintain business continuity. Start by understanding the capital gains tax implications of your property investment. These may vary based on the nature of your business and the location of the property.
We recommend working closely with a tax consultant on everything related to tax obligations and deductions, ideally one that has experience working with real estate investors.
Claim Tax Deductions
To take advantage of tax deductions for rental expenses at the end of the financial year, you must understand the types of deductible expenses and how to claim them correctly, following advice from your tax consultant.
Typically, your tax accountant will need the following documents for your tax reporting and deduction claims:
- Bank Statements of your property accounts and related loans and transactions
- Cash flow documents, including all invoices and receipts for your property
- Your insurance policy and all documents related to your insurance plan and costs
- Tax depreciation schedules
- Rental income statements issued by property managers (typically include mortgage payments and paid outgoings)
- Rates notices
There are three types of rental expense categories:
- Immediate deductions,
- Deductions over time, and
- Non-deductible expenses
Immediate deductions include interest-only loans, council rates, one-time and ongoing repairs, and all costs involved in maintenance and property management fees. These expenses can be claimed in the income year during which they are spent.
Deductions over time, on the other hand, are claimed over multiple years. These include capital works, borrowing costs, and asset depreciation.
There are also non-deductible expenses that you can’t claim in your tax report, such as capital nature expenses, personal expenses, buying second-hand assets that are depreciating, and holding costs for vacant land. You also can’t claim payments made to contractors without an ABN.
Here’s a summary of the deductions that you can and can’t claim:
What You Can Claim
- Interests on loans with fixed or variable interest rates on loans
- Council rates
- Repairs and maintenance
- Depreciating assets costing $300 or less
- Capital works and borrowing expenses
- Property management fees
- Other expenses related to real estate investment and mortgage brokers
What You Can’t Claim
- Personal expenses
- Capital nature expenses
- Purchase of second-hand depreciating assets after 9 May 2017
- Expenses incurred for personal use of the property
It’s also important to note that claiming the right amount is critical for ensuring accurate tax reporting and deductions. Your tax consultant professional will provide feedback to the relevant scenarios that may impact the amount of expenses you can claim, such as a partial year rental and shared property ownership.
Another factor to take into consideration is gearing. There are two types of gearing: positive gearing and negative gearing.
- Positive Gearing: Profit when taxable income exceeds deductible expenses.
- Negative Gearing: Loss when deductible expenses exceed rental income. So, if your property hasn’t generated any profit, you might be able to take advantage of more tax deductions to minimise your loss.
Evaluate Your Portfolio Performance
As a property investor, it’s important to periodically evaluate the performance of your investment properties and understand which are generating more profit.
Consider factors such as expenses, rental income, vacancy rates, and capital growth. Establish metrics and KPIs to measure and track the performance of your properties and whether they’re meeting expectations. Identify the properties that don’t generate enough profit and analyse the causes of underperformance so you can make better decisions moving forward.
For instance, you might decide that a property is no longer worth running and it’s time to consider selling it. You might also consider diversifying your portfolio with new investment opportunities and buying property in other markets with higher rental demand and capital growth.
Also, if you have been focusing on a specific type of property, such as residential properties, consider exploring other types of properties in the industrial or commercial sector based on market research and dynamics.
Stay Informed on Legislative Changes
Being aware of legislative changes related to rental properties is essential to understanding your lessor rights and obligations.
An example of such changes include when Consumer Protection WA began the Residential Tenancies Act review to consider potential improvements required to keep pace with the changing tenancy market in WA.
As a result of this review, the WA State Parliament passed Phase One of the WA Rent Reforms on 16 April 2024 which introduced a range of major reforms.
Consumer Protection is now developing Phase Two recommendations to be presented to the Government in the later half of 2024 and is also expected to also introduce major reforms for landlords and tenants.
Stay updated on changes to tax laws, rental regulations, and government initiatives and develop strategies that can be adapted to these changes.
Also, negative gearing rules, for example, are regularly updated, and staying informed on them will help you understand what you can claim in your tax deductions.
Need Help with Getting on Top of EOFY?
At HERE, we help you overcome the complexities of EOFY obligations and evaluations, ensuring that you maximise your returns and have a better perspective for the upcoming year.
Talk to one of our experts today.
